Just how will the world’s major retail banks fight back once the Covid pandemic is behind us? Sanat Rao, Chief Business Officer & Global Head, Infosys Finacle, sets out a roadmap for executives to manage stakeholder expectations and position their businesses for future growth
The Covid-19 pandemic has made a profound impact on people and industry worldwide. In the case of banks, in addition to managing their own businesses, they have had to assume a social responsibility to help customers and communities get through the crisis.
Be it transmitting massive government relief packages, deferring loan repayments, or encouraging digital consumption, banks have had to rise to the occasion, even while having to manage their own challenges around rising NPAs, shrinking growth rates, and declining valuations.
The pandemic has essentially accelerated the multi-dimensional disruption banks have been facing due to a confluence of several forces. On the economic front, banks have had to operate amidst shrinking GDPs, low to negative interest rate regimes, unemployment, and a slowdown in private investments, among others.
On the political front, geopolitical volatilities, protectionism, and uncertain global trade dynamics have impacted the trade finance business. Finally, on the regulatory front, new Open Banking regulations and a host of other consumer rights like data privacy, security, anti-money laundering measures means rise in cost and compliance burdens on banks.
Increased competition, rising customer expectations
Add into this mix, the new digital technologies such as Cloud, API, AI, and Blockchain, has enabled new competitors to enter with innovative, low-cost, disruptive models to threaten incumbent banks that are still on legacy technology.
As a result, banks are facing increased competition, especially from non-traditional players such as challenger banks as well as fintech’s and technology giants like Apple, Google, Alibaba. From a social perspective, the dynamism of customer expectations, their access to information, and ability to vocalise demand is unprecedented.
These conditions are making it exceedingly difficult for bank executives to take decisions with conviction. Leading consulting firms have recommended several frameworks to guide action in these times. However, banks will need to consider these recommendations in their unique context before expecting to see any value from it.
Every bank should apply this thinking in its own unique context – a context that is defined by an organisations’ purpose. Revisiting and aligning closely with the organisation’s original ambition, thus, would be a more sound way to guide a bank’s decisions.
Banks redefine their purpose statements
Interestingly, a recent KPMG CEO survey conducted in the pandemic period supports this view. As per the survey, 79% of CEOs said they felt a stronger emotional connection to their corporate purpose since the crisis began. This is also reflected in the purpose statement of the largest players.
For example, ANZ Bank states, “Our purpose is to shape a world where people and communities thrive.”, the NatWest Group reads, “Our purpose is to champion the potential of people, families, and businesses.”, finally the Bank of America states as follow: “Our purpose is to help make financial lives better through the power of every connection.”
These are rather similar purposes and despite different locations the ambition is to improve the way their customers and communities manage their financial lives. So how this can be achieved?
There are few areas that banks can prioritise to drive balance across stakeholder expectations. They must engage with their customers and employees constantly, to drive purposeful growth for their customers and themselves. Digitisation has rewritten the cost efficiency norms in banking. They should maximise operational efficiencies, to reduce costs of servicing and emerge more sustainable.
They will do well to focus on continuous innovation to create new value and be competitive. Also, banks must prioritise continuous transformation in order to stay relevant to the evolving dynamics.
Things are poised to get more challenging, as the Covid-19 led economic contraction aggravates. A study by McKinsey estimates that the banking industry will lose cumulative revenues worth $ $1.5trn to $4.7trn between 2020-24 and may take up to five years to recover to pre-pandemic ROE levels.
A purpose-driven path to transformation is essential to help banks recover in the short-term, thrive in the long run, and help create value for the communities they serve. Banks with a clear focus and strategy built around the above priorities and talent they have, will be better positioned to manage stakeholders’ expectations and will be on the road to recovery and growth, much earlier than others.